Rare Earth Elements update – November/December 2010

Author: Sean Wolfgang

Rare Earth Elements have continued to gain prominence since the September 2010 halting of shipments from China to Japan over an incident near the mutually claimed Senkaku/Diaouyu Islands. But the incident that brought REE to prominence was followed by the stoppage of REE to the US and Europe amid confusion (both international and in China) over new Chinese export quotas. We are now beginning to see how the US and other countries are responding. A changing market and the economic and defense consequences of higher prices and less Chinese imports have produced a range of short and long-term responses.

Motives for the changes in REE exports from China range from geopolitical to economic to environmental, depending on the specifics and whether the Chinese government’s stated reasons are to be taken at face value. The stoppage of exports to Japan was widely interpreted as leverage in response to the arrest of a Chinese fishing boat captain for ramming two Japanese Coast Guard vessels near the disputed Senkaku/Diaouyu Islands. However, later slowdowns in exports to the US and Europe appear to have to do more with internal Chinese policy. Reducing export quotas has been planned since July, with Beijing citing efforts to avoid the depletion of Chinese deposits, supply their growing domestic industries, and reduce environmental damage. China has stated that it will “continue to supply rare earth to the world” even with these restrictions, but the lack of clarity in policy and sudden stoppages have led the US to seek a ‘unified front’ with concerned states and press for clearer explanations1. Some clarity was given when Chinese Ministry of Industry and Information Technology spokesman Zhu Hongren said that “China will not use rare earths as an instrument for bargaining,” but the details of export policy remain murky2.

Meanwhile the market has responded with the prices of REE rising dramatically, by an average of 300%3. This is making once cost-prohibitive extraction and refining projects attractive to investors again, and has encouraged the restarting of the Mountain Pass mine in California and a Lynas Corp. mine in Australia. Other projects beginning in Canada, Vietnam, Greenland, and South Africa, are set to come online by 20144. Governments have also taken steps to secure a supply to match rising demand, with the US House passing a bill on 29 September that allows federal loan guarantees to US REE producers5. Germany too has adopted a strategy to secure sources, with Chancellor Angela Merkel stating that is it “urgently necessary” to expand investment in Eastern Europe and Central Asia6.

Among importing nations, however, Japan has taken the most comprehensive approach.. For some time major Japanese corporations, as well as the Japanese government, have been looking to lessen their dependence upon Chinese REE. This early concern, combined with REE stockpiles, has meant that Japan is currently ahead of the game in responding to China’s supply disruptions. Seeking deals with new potential REE suppliers has already begun, with Sumitomo and Toshiba setting up trade deals with Kazakhstan and Prime Minister Kan beginning talks with Mongolia over mining projects in that country. There has also been a fast-tracking of substitutes and methods to reduce overall REE consumption7. Another method undertaken to lessen dependence upon Chinese REE is Japan’s push to recycle old electronics and appliances and extract the REE contained within them8.

These international reactions point to the conclusion reached in the
backgrounder report, that China has short term leverage that will dissipate in the next two to four years. By using an undeclared REE embargo against Japan over a territorial dispute, combined with lack of warning or clarity over export reductions, China has inadvertently made REE production elsewhere both politically and financially desirable. Furthermore, since China is a WTO member, its short term leverage might be complicated should another member wish to file a complaint in that forum9. China will surely still influence the worldwide prices of REE with its lower production costs and front-runner position in refining, the market is about to become much more diversified in the next few years. This might in fact work to China’s advantage in other ways, since it will lessen the depletion of its REE deposits and help reduce the environmental impact of extraction and refining. China may even wish to import certain rarer REE from these new sources in the future for use in its growing high tech and green energy production10.


[1]Ratnam, Mark Drajem and Gopal. “Rare Earth Prices Soar Even as China Pledges Supply.” Bloomberg.com, October 20, 2010. http://www.bloomberg.com/news/2010-10-20/china-pledges-to-maintain-rare-earth-sales-official-says-exports-may-rise.html

[2]Reuters. “China Vows Not to Use Rare Earths as Leverage.” Reuters.com. October 28, 2010. http://www.reuters.com/article/2010/10/28/us-rareearth-idUSTRE69R12Y20101028 (accessed November 4, 2010).

[3] Global, Karvy. “Molycorp Sitting Pretty in Rare Earth Metal Trade.” TheStreet.com. November 3, 2010. http://www.thestreet.com/story/10910387/1/molycorp-sitting-pretty-in-rare-earth-metal-trade.html (accessed November 4, 2010).

[4] Ibid.

[5] Ratnam, Gopal. “U.S. Defense Department Sees No Rare-Earths Crisis; May Aid U.S. Producers.” Bloomberg.com. October 31, 2010. http://www.bloomberg.com/news/2010-10-30/pentagon-sees-no-security-threat-from-rare-earths-may-aid-u-s-producers.html (accessed November 4, 2010).

[6] Ratnam, MD “Rare Earth Prices Soar…”

[7] Kosich, Dorothy. “China’s unofficial metals embargo of Japan may ignite global REE fire.” Mineweb.com. October 5, 2010. http://www.mineweb.com/mineweb/view/mineweb/en/page72068?oid=112369&sn=Detail (accessed November 8, 2010).

[8] “Japan pushes rare earth recycling.” ReutersVideo (YouTube channel). October 19, 2010. http://www.youtube.com/watch?v=-yNe2EGhiZ4 (accessed November 08, 2010).

[9] Drajem, Mark. “China Faces Challenge in Defending Export Limits on Rare-Earth Resources.” Bloomberg.com. October 26, 2010. http://www.bloomberg.com/news/2010-10-26/china-faces-challenge-in-defending-export-limits-on-rare-earth-resources.html (accessed November 8, 2010).

[10] Jha, Saurav. “Did China Overplay Rare Earth Hand?” The Diplomat. 11 17, 2010. http://the-diplomat.com/2010/11/17/did-china-overplay-rare-earth-hand/ (accessed 11 17, 2010).